Back in July I wrote the following article titled “Just Keep On Dancing?” And In it I stated the following. To wit:
“If there was ever any doubt that the “markets” are nothing more than a HFT (high frequency trading) cesspool of central bank funded front-running; today is that day when all doubt has been erased.
Whether or not one accepts that fact is a choice they have to make for themselves. Only you can decide how long you want to “dance,” as there seems to still be music playing in the casino ballroom.”
Since then the “markets” have (reminiscent of 2015) made headlines of “new lifetime highs” screamed by financial pundits everywhere extolling the virtue of today’s stock markets. Yes, every tick or move higher was praised as coming directly from the “earnings beats” produced by today’s balance sheet engineers.
Who needs fundamentals (you know, like more sales and such) when you can state before the earnings season you’re going to sell a gazillion dollars worth of product. Then, by the time you need to show those numbers, you have reduced it from “a gazillion” to about a dozen, where you’ll now proclaim you sold 13 “beating” your now stated, although lowered, target. Yet, it still offers up the headline “beat” for the next in rotation fund managers to proclaim across their willingly and reflexively repeating media outlets.
For that’s all that matters. Rinse, repeat.
So now as we sit here today the markets are waking up to not only a 2%+ downdraft across most of the major indexes. The “markets” are suddenly not behaving as they have since the beginning of the year. It seems someone, somebody, or something (i.e., your friendly HFT’s) have decided BTFD is now risky business. Funny how that happens, no?
It would appear based on “fundamentals” owning stocks, bonds, and a whole lot more isn’t as wonderful of an opportunity to buy, buy, buy if the number one fundamental facilitator of all price action (e.g., The Fed.) just might close the “open bar.”
No one knows for sure, but when the crying “doves” appear to be wiping away their tears as the jukebox begins to play “We’re not gonna take it!?” The prudent begin to move toward the exits and call for rides.
In that July article I posted a chart as to show where we were then. Below is where we are as of Monday before the market opens. To wit:
As you can see, we really went nowhere. However, if one remembers all the headlines and proclamations touting “New lifetime Highs, Again!” over the last few months. It would be easily explainable why, when one looked at the above chart, you felt a little puzzled. After all, not only has the “market” basically gone nowhere since then. It now sports a selloff of over 2% – and the month has just begun. (The above is a monthly chart)
So the question is: Did the music stop on Friday?
If it did, then that red line I placed showing the rise based on nothing more than “Central Bank Liquidity” as the fundamental reason of that rise shows just how precariously high, and subsequently, just how precipitous of a potential decline is once again being placed “on the table.”
As I stated in another article “Wall St. Laughs As The Doves Cry” It appeared the HFT cabal was more than emboldened that the “liquidity bar” was going to remain open, regardless of any further rhetoric coming from the all too predictable Fed. members.
However, once a perceived dyed-in-the-wool Keynesian dove (The Fed’s Eric Rosengren) starts touting the idea that he too believes it may be time to raise rates, all while he does the equivalent of strutting across the bar-room, hitting the jukebox, and it begins to belt out a Twisted Sister song? As I said earlier – the prudent are going to begin heading for the exits.
That’s a fundamental you can bank on.
Now the only question is: How much further does this decline travel before the owner of this “bar” (Chair Yellen) proclaims once again…
“I declare September is off the table! Drinks are on me!”
Welcome to your fundamentally flawed “markets,” where the only thing that matters fundamentally – is the open spigot of liquidity.
© 2016 Mark St.Cyr